BlackBerry (BBRY) went on sale, but then the company called it off and the sale will not happen anytime in the future. Instead, the smartphone maker plans on rebuilding and will sell convertible debt of $1 billion to its institutional investors including Fairfax Financial Holdings, Ltd. (OTCQB:FRFHF). Currently, Fairfax remains as BlackBerry's biggest shareholder.
Apart from the cancellation of the sale, the Chief Executive Officer, Thorsten Heins will leave his office with around $22 million in his pocket as his payout. John Chen, who was once the CEO of Sybase Inc., will take over Heins' position.
The news about the sale withdrawal as well as the change in management did not really provide a positive impact on BlackBerry stock. In fact, the stock plunged almost 17% and came down to $6.45. While the Apple (AAPL) and Android devices from Google (GOOG) continue to do well in the stock market, BlackBerry seems to be heading in the opposite direction. Almost everything that is happening with the company may be negative, but there are still a few reasons why some analysts say there is still hope.
New Deal, New CEO
The deadline for the BlackBerry sale to Fairfax approached and the company stopped the process altogether instead. The acquisition agreement was signed last September 23rd and BlackBerry would have benefited from the deal if it continued since Fairfax has a 9.9% stake with the company. The good news here is that Fairfax is still interested with BlackBerry even though there has been a change of plans.
Fairfax is more involved in injecting $1 billion worth of funds along with other investors into BlackBerry. The transaction may be completed in the next two weeks. Adding to the funds, BlackBerry has a new CEO in the form of John Chen who was able to transform the losing Sybase business into a profitable company. With the change in management, Chen's willingness to take on the challenge of rebuilding BlackBerry, and the additional money, the company just may have the chance to survive.
The new management of BlackBerry believes that big returns will come if a turnaround is successful. Everything will now be handled with caution from the strategic direction to the organizational goals of the company. The five other investors that will finance BlackBerry's funds have also been revealed which included Mackenzie Financial Corp., Markel Corp. (MKL), Canso Investment Counsel Ltd., Qatar Holding LLC, and Brookfield Asset Management Inc. (BAM). The executives as well as the board members have a positive view on the company for its future. Alongside the new CEO seen as a plus, BlackBerry has issued convertible debt. This can be used to ramp up the company's revamp and give focus to their research and development efforts.
It is not too late to bet on BlackBerry even though a number of analysts are already bearish on BlackBerry. The stock price is still at least $6 and there are a handful of investors who are buying December $6-$8 puts. The December puts cost at least 20 cents and will be worth $1 if the company falls to $5. It is also interesting that the total average of the company's contracts is around 77,000 and it has risen to almost 80,000 sold contracts this quarter. Even more interesting is the fact that BlackBerry is now the most actively traded option because it has traded more than 300,000 contracts.
Investors who have the BlackBerry stock in their portfolio do not have to turn away from it just yet. Instead of shorting the stock, buying is always a much better option as it has fewer risks. Additionally, the amount of money that is put at risk is already defined when investors buy the stock. In comparison, the cost to buy back shares is much higher than the put cost especially if BlackBerry's value suddenly goes up.
Before abandoning BlackBerry, investors should know that it is possible to profit from the slide. With Fairfax still investing on the company and a positive operating cash flow, investors can still gain from BlackBerry stock.